Cap-and-trade death knell, revisited and revised

I have been scolded by several progressive green friends for my post on Sen. Lindsey Graham’s comments on cap-and-trade. I should admit up front that “death knell” was a bit dramatic on my part; generally speaking, it’s better never to draw big conclusions from the kind of lazy reporting done by the likes of The New York Times‘ John Broder. It’s clear that Graham’s comments were taken out of context and he did not intend to shut the door on cap-and-trade entirely.

Still, I think many of these selfsame friends are being rather too optimistic in their gloss on Graham’s comments, and on the prospects for legislation generally. Let’s dig into this a bit more.

Is there anything new?

It’s true that the NYT’s Broder and Kraus made more of Graham’s comments than they warranted. It’s not new for Graham to decry the bills that passed the House and the Senate Environment and Public Works Committee. His whole shtick is positioning himself as the guy who’s going to ride in and make those infernal liberal bills more “business-friendly.”

It does, however, seem notable to me that he went beyond bashing the previous bills to saying that any “massive cap-and-trade system that regulates carbon in a fashion that drives up energy costs” is dead. It’s hard for me to imagine an economy-wide cap-and-trade system that doesn’t fit that description, at least in the mind of a Republican. (After all, a price on carbon, um, puts a price on carbon. Which, you know, raises its price. That’s kind of the point.)

And remember: it’s not just Graham. He’s at the bleeding edge here (God help us). Collins, Snowe, Lugar, Voinovich, Murkowski, McCain — all their votes will be needed. They’ll all have to be persuaded that whatever’s in the final bill isn’t a “massive cap-and-trade system that regulates carbon in a fashion that drives up energy costs,” after being told for months by their base and corporate think tanks like Heritage that any price on carbon will cripple the economy. That’s a lot of walking back for them.

What did he mean?

With all of DC in a tizzy over the NYT story, Graham tried to clarify his comments. First, there was this statement:

The energy legislation that was passed by the Senate Energy and Natural Resources Committee is not strong enough to lead us to energy independence. The climate change legislation passed by the House of Representatives and Senate Environment and Public Works Committee is too onerous on business and does not enjoy bipartisan support.

My goal is to continue working with Senators Kerry, Lieberman and my Senate colleagues to create a new pathway forward that focuses on a more robust energy security package and a more business-friendly climate legislation.

To jump-start nuclear power, wind and solar and the green economy, you’ve got to price carbon. How you do it is subject to discussion and open debate. But the idea of not pricing carbon, in my view, means you’re not serious about energy independence. The odd thing is you’ll never have energy independence until you clean up the air, and you’ll never clean up the air until you price carbon.

My insidery friends tell me that Graham’s earlier cap-and-trade bashing was just a bit of framing for his conservative friends, setting whatever he comes up with in contrast to those other liberal cap-and-trade bills.

“I am for a legislative solution, not a rulemaking, not an unaccountable rulemaking process,” said Landrieu, one of three Senate Democrats who co-sponsored a resolution that would strip EPA of [CO2 regulating] authority. “I’m for an accountable legislative process to achieve that, and I’d be open to some modification of cap and trade that really recognizes the importance of the refining industry here. Because we’re going to have a supply shortage of oil and refined products. We need to do it all. We need to be producing more and particularly more natural gas.”

And here’s Sen. Ben Nelson (D-Neb.):

“I want to see what the legislation does,” he said. “I said I can support cap. I have trouble with cap and trade, the trade part of it. So if it’s cap and trade, watered down, and it’s only the trade watered down, that won’t satisfy me.”

The comments of Graham, Landrieu, and Nelson all have something in common: they don’t make any damn sense. They betray middling intellects working with, to put it charitably, incomplete understandings of the policy mechanisms at issue here.

Optics

But that’s the U.S. Senate. So the Kerry/Graham/Lieberman process will be entirely about putting something together that has the right optics — something conservatives can sign on to as a herd, protected by numbers from right-wing attacks. “Would my colleague George Voinovich support a socialist blah blah? Why I think not!”

My question is: what does that policy look like? And here I return to where I started: I don’t see any way that an economy-wide cap-and-trade system can satisfy those optics. I mean, how would you make the Kerry-Boxer cap-and-trade system more “business friendly”? Even lower targets? Even more offsets? It’s already not much more than a mild improvement on business as usual through 2020 — how much further down can it come?

What could satisfy those optics is a sector-specific cap-and-trade program that covers only electric utilities, and that’s definitely on the table:

“You ask about the power sector, to do that alone wouldn’t be my first choice, but if it’s all we can do in the end, I’d consider it, sure,” Lieberman said yesterday.

“Some people have mentioned different sectoral approaches, we’re looking at that,” Kerry said. “We’re looking at everything. What we want to do is make sure that we get the job done. And we’re not wedded to any one way of trying to do that, so we’re looking at options.”

Could cap-and-trade start sector-specific and then expand out over time to cover the entire economy? I suppose so. Could it start sector-specific and then be expanded out when it reaches conference committee, where it’s blended with the House bill? Unlikely, but possible.

Anything’s possible, but in the end, I just don’t see how you start from Graham-style hostility toward what is in effect an incredibly mild and watered-down cap-and-trade system and end up at a place where you’ve still got any kind of economy-wide system in place. It’s too far a reach.

Then again, maybe the Senate will pleasantly surprise me. There’s a first time for everything.